Social Security not in a crisis, but does face long term problems

WASHINGTON—The brewing fight over reforming Social Security starts with a simple point of contention: is the system facing a crisis?

President Bush says it is. He says it's going broke, that radical steps must be taken and they must be taken now. "By the time today's workers who are in their mid-20s begin to retire, the system will be bankrupt," Bush said last week. "Flat bust, bankrupt, unless the United States Congress has got the willingness to act now."

Others, such as the American Association of Retired Persons, counter that the pension program isn't in peril and that long term problems can be easily fixed with a few small adjustments. "Social Security is not in danger of going broke," said AARP chief executive William Novelli.

Facing a coming barrage of claims backed up by costly and slick advertising, but lacking a degree in accounting, what's the average American to think? This much is clear: like any political campaign, each side is exaggerating.

Social Security is not in a crisis. Full checks will keep going out for decades even without changes. But it does face problems. The rest of the government—or taxpayers—could be squeezed to pay off debts to Social Security starting in 14 years. And benefits could have to be cut or taxes raised starting in 38 years.

Deciding how much trouble the program faces is critical.

Bush is working to build political support in Congress and the country to cut benefits and allow younger workers to make up the difference with personal savings built with some of their own Social Security taxes. Newt Gingrich, a former House speaker and influential Republican strategist, said last week that he does not think there is enough support in the country to cut benefits.

Yet the more Americans think the popular pension is headed off a cliff, the more they could support his dramatic change of course.

"We need to establish in the public mind a key fiscal fact: right now we are on an unsustainable course," White House political strategist Peter Wehner wrote in a recent memo to allied conservative groups. "The reality needs to be seared into the public consciousness."

Bush is leading the drumbeat, starting with a series of speeches and staged events and building to a prime spot in his upcoming State of the Union Speech. "The crisis is now," he said recently.

Yet the facts show there is no imminent threat to Social Security.

Even without a single change, the checks will continue to go out as scheduled at least until 2042, perhaps 2052. Even then, the system could afford to pay 73 percent of benefits. And under one of three projections envisioned by the trustees who run the program, it could even afford to keep paying full benefits AND start amassing a big surplus.

"There is no crisis now," said Bernard Wasow, a senior fellow at the Century Foundation, a Washington think tank that opposes Bush's plans. "The system is scheduled to keep building up reserves for the next 14 years and is not expected to exhaust its savings until somewhere between 2042 and 2052. Most people would hardly call that a crisis."

Indeed, the Social Security system is continuing to collect more in taxes now than it pays out in benefits. That ends in 2018, when the program starts paying out more in benefits to a retiring Baby Boom generation than it collects in taxes. But it then will start cashing in $1.5 trillion in Treasury bonds it holds and thus still be able to pay full benefits until sometime between 2042 and 2052.

Some critics of the president's plan argue that long-term economic forecasts by the government are notoriously inaccurate and that the most-often cited trustee scenario is built on a series of conservative assumptions.

A little better economy over the next several decades would keep Social Security in surpluses for decades to come under the most optimistic of three forecasts offered by the program's trustees.

For example, one key to the optimistic forecast would be Americans improving their productivity by an average of 1.9 percent a year over the next 75 years.

That increase in productivity would be slightly better than the 1.8 percent a year average from 1960 to 2000, but slightly below the 2 percent a year average from 1993 to 2003.

Still, Social Security does have problems—or the rest of the government has problems.

For decades, the federal government has borrowed from the Social Security "trust fund" surplus to pay for hundreds of billions of dollars in government services. Starting in 2018, when the cost of benefits will begin to exceed payroll tax revenue, that bill will come due and Social Security will demand repayment.

That in turn will require the rest of the government to raise taxes, cut spending, or pile on more debt to pay off the debt to Social Security.

Moreover, two out of three forecasts by the pension's trustees state that benefits would have to be cut by 27 percent somewhere between 2032 and 2042 unless something is changed before that.

"This is a huge problem," said Alison Fraser, an analyst at the Heritage Foundation, a Washington think tank that supports bold changes in Social Security.

"It's very important that people understand there is a problem and that you can't solve it by tinkering around the margins."

Whether it's a crisis now or threatens to become one, said Fraser, is irrelevant. "If we wait till it's a crisis, it will be extremely difficult to solve without putting the pinch on a lot of innocent people."

Said White House spokesman Scott McClellan: "We can debate words like crisis...but I think it's very clear that this is a significant problem facing the American people. ... Now is the time to act."

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Information on the Web is available at www.aarp.org, www.heritage.org, www.ssa.gov, www.tcf.org, www.whitehouse.gov